A T 3 0 A P R I L 2 0 1 4 F I R S T H A L F - Y E A R A N D S E C O N D Q U A R T E R 2 0 1 3 / 2 0 1 4
F I N A N C I A L H I G H L I G H T S ( I F R S ) AT A G L A N C E
AT A G L A N C E
Stock exchange-listed Deutsche Beteiligungs AG invests in well-positioned mid-sized companies with growth potential in selected sectors. With our experience, expertise and equity, we support our portfolio companies in implementing their sustainable value-creating corporate strategies.
1st half year 2013/2014 1st half year 2012/2013 2nd quarter 2013/2014 2nd quarter 2012/2013
New investment in the portfolio 1 €mn 5.0 14.4 0.8 0.0
IFRS carrying amount of investments (30 April) 1 €mn 193.3 134.4 – –
Number of investments (30 April) 20 16 2 – –
EBIT €mn 18.1 19.8 5.7 12.0
Earnings before taxes (EBT) €mn 18.3 19.9 5.8 12.0
Consolidated net income €mn 18.1 18.9 5.6 11.4
Consolidated retained profit €mn 88.4 73.4 – –
Equity (30 April) €mn 279.7 268.7 – –
Cash flows from operating activities €mn 4.9 (7.4) (3,4) (7.0)
Cash flows from portfolio investments €mn (5,0) (11.8) (0.8) 0.0
Cash flows from investing activities €mn 23.1 62.9 21.4 2,3
Cash flows from financing activities €mn (16.4) (16,4) (16.4) (16.4)
Change in cash funds €mn 6.6 27.3 0.8 (21.1)
Earnings per share 3 € 1.32 1.39 0.41 0.84
Net asset value (equity) per share % 20.45 19.65 – –
Change in net asset value per share 4 % 6.7 7.6 – –
Employees (30 April) number 52 54 – –
1 IFRS carrying amounts of the portfolio within items “Financial assets” (172.4 million euros) and loans and receivables (20.9 million euros)
2 Without Formel D, Stephan Machinery and inexio: although these investments were agreed in the second quarter of 2012/2013, they were only completed after the end of the period
3 Relative to weighted number of shares outstanding in each period
4 Change in net asset value per share relative to opening net asset value per share at beginning of period, less the sum proposed for dividend payment
Our entrepreneurial approach to investing has made us a sought-after investment partner in the German-speaking region. We have achieved superior performance over many years – for our portfolio companies as well as for our shareholders and investors.
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L E T T E R T O S H A R E H O L D E R S6
I N T E R I M R E P O R T O N T H E F I R S T H A L F - Y E A R A N D 2 N D Q U A R T E R O F F I N A N C I A L Y E A R 2 0 13 / 2 0 1 4 7 . THE GROU P A N D U N DERLY I NG CO N DI T I O NS7 . Business activity: Equity investments in industrial and services companies with potential for growth; financing alongside parallel investment funds 8 . Business environment unchanged: Intense
competition in private equity market; underlying conditions mixed
9 . Staff
9 . ECO N OM I C P OSI T I O N O F THE GROU P
9 . Earnings position in the first six months: Greatest contribution to income from Homag shares; net expenses nearly balanced 11 . Asset position and portfolio development:
Growth in portfolio value
13 . Financial position: Financial resources down by 13.6 million euros
13 . SIGN I FI CA N T E V EN TS A F T ER THE EN D O F THE REP ORT I NG PERI O D
14 . SHARES
16 . OPP ORT U N I T I ES A N D RISK S
17 . REP ORT O N E X PECT ED DE V ELOPMEN TS
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C O N S O L I D A T E D I N T E R I M F I N A N C I A L S T A T E M E N T S A T 3 0 A P R I L 2 0 1 4 19 . CO NSO L I DAT ED S TAT EMEN T
O F COMPREHENSI V E I NCOME 21 . CO NSO L I DAT ED S TAT EMEN T
O F CA SH FLOWS
23 . CO NSO L I DAT ED S TAT EMEN T O F FI N A NCI A L P OSI T I O N 24 . CO NSO L I DAT ED S TAT EMEN T
O F CHA NGES I N EQU I T Y
25
C O N D E N S E D N O T E S T O T H E I N T E R I M F I N A N C I A L S T A T E M E N T S
26 . GEN ER A L I N FORMAT I O N
29 . N OT ES TO THE CO NSO L I DAT ED S TAT EMEN T O F COMPREHENSI V E I NCOME A N D THE CO NSO L I DAT ED S TAT EMEN T O F FI N A NCI A L P OSI T I O N
31 . OTHER DISCLOSURES
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O T H E R I N F O R M A T I O N 36 . P ORT FO L I O COMPA N I ES 37 . FI N A NCI A L CA LEN DAR
Dear Shareholders,
The consolidated net income of Deutsche Beteiligungs AG (DBAG) reached 18.1 million euros in the first six months of this financial year, roughly equal to the previous year’s 18.9 million euros. Of that amount, 5.6 million euros were recorded in the second quarter, which compares with 11.4 mil-lion euros for the same period last year.
The second-quarter trend primarily reflects the valuation of the unquoted portfolio, which for the moment did not register another substantial gain in value. Various macro factors such as the Ukraine crisis, devaluation pressure on currencies, particularly those of the BRIC nations, as well as weaker growth forecasts for those nations have weighed on the business of a number of portfolio companies. These developments, however, are within the scope of normal business fluctuations, and therefore the managements of the portfolio concerned saw no need to basically adjust their budgets.
Most of our portfolio companies continue to have good order-intake levels and are benefitting from a favourable market environment. They therefore expect higher revenues and improved earnings for 2014. Consequently, the net result of investment activity for the first half-year of 2013/2014 was positive, totalling 18.8 million euros, of which 5.6 million euros were generated in the second quar-ter. The net result of investment activity contains the value movements of 15 portfolio companies; five others are still being valued at cost, since they have been in the portfolio for less than one year. Stock market movements in the form of higher multiples only had a minor influence on the valua-tion result. A much stronger effect can be ascribed to improved earnings and lower debt and, with that, the individual performance of our portfolio companies’ managements. Our investment in Ho-mag Group AG again contributed positively both to the half-yearly and second-quarter results, thanks to the company’s upward share-price trend. Homag’s total contribution was 10.2 million eu-ros, following 12.3 million euros in the previous year.
Another satisfying aspect is the persistent positive trend in net expenses. Since the start of DBAG Fund VI, we have been achieving higher fee income from investment services to parallel invest-ment funds. Consequently, net expenses – visible in the item “Total other income/expenses” – were further reduced in the half-year period, as planned; they amounted to 0.5 million euros. In view of the methodology involved in determining fee income for investment services to funds, net ex-penses could conceivably rise again in future periods: higher fee income results after the start of a new fund if its size exceeds that of its predecessor fund. In contrast, every exit from the portfolio re-sults in a reduction in management and advisory fee income.
L E T T E R TO
Net asset value per share was 20.45 euros at 30 April 2014, which is an increase of 9 eurocents per share compared with the start of the financial year. Relative to net asset value at the outset of the fi-nancial year, less the dividend of 1.20 euros (19.16 euros), this equates to a gain of 6.7 percent. The preceding year’s first six-month period ended with consolidated net income of 18.9 million euros, while net asset value per share gained 7.6 percent.
We are very satisfied with the strategic development of our portfolio companies; they are making good progress implementing the strategic plans of action agreed for their development at the outset of our investment. In addition to other steps in its development, on which we reported in the first quarter, machine manufacturer Romaco will focus its strengths even more strongly on the phar-maceutical industry. It has therefore moved its food processing technologies to a new holding com-pany in the portfolio of DBAG. That will allow the two companies to make effective use of their substantial synergies.
In April, together with DBAG Fund VI, we sponsored the management buyout (MBO) of Dahlback, the fifth largest bakery chain in Germany. It is the first new investment in the current financial year. With Dahlback – or “Unser Heimatbäcker”, as the company is to be called in the future – we have added another attractive company to our portfolio. We have a number of potential transactions in the pipeline for the remainder of the year and are confident of again being among the most active participants in our market segment. We have ample resources at our disposal to do so – some 85 million euros in the DBAG balance sheet and nearly 700 million euros through our parallel invest-ment funds.
The forecast we issued in our Annual Report at the end of January remains valid. We assume that the unquoted portfolio will again contribute positively to income. Given stable stock market condi-tions and favourable economic growth in major industrial and emerging countries – but excluding the contribution that our quoted Homag investment will make – we expect that consolidated net income for 2013/2014 will fall short of that posted for the preceding financial year. We remain con-fident of achieving a return on net asset value per share in the order of the cost of equity – the mini-mum objective we have set for the long-term average.
The Board of Management of Deutsche Beteiligungs AG
on the first half-year and 2nd quarter of financial year 2013/2014
I N T E R I M
R E P O R T
T H E G R O U P A N D
U N D E R LY I N G CO N D I T I O N S
B U S I N E S S A C T I V I T Y : E Q U I T Y I N V E S T -M E N T S I N I N D U S T R I A L A N D S E R V I C E S C O M P A N I E S W I T H P O T E N T I A L F O R G R O W T H ; F I N A N C I N G A L O N G S I D E P A R A L L E L I N V E S T M E N T F U N D SDeutsche Beteiligungs AG seeks to invest in healthy companies with an excellent market position and good prospects for development. It backs these companies for a period of usually four to seven years as a financial investor in a focused-partnership role. It pursues the objective of appreciating the value of its portfolio companies. Deutsche Beteiligungs AG realises that value upon a portfolio company’s ultimate disinvestment. The portfolio companies take the next step in their development under a different constellation, for example, alongside a strategic industrial partner, a new financial investor or as a quoted company. The investment performance of Deutsche Beteiligungs AG is based, first and foremost, on tried and true private equity work processes. These include
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an in-depth due-diligence process prior to making an investment,>
supporting the portfolio companies’ managements during the holding period in implementing their corporate concepts by taking offices on advisory councils and supervisory boards, and>
a disinvestment process that is well-timed and well-structured.The mode and specific structuring of the investments are geared to individual financing situations. We therefore invest in different ways – by taking majority or minority positions. We principally structure majority acquisitions as management buyouts (MBOs): to acquire a controlling interest in a company, DBAG and one of its advised funds as well as the target company’s management will invest equity. DBAG and a parallel investment fund will also provide equity to finance growth.
Growth financings are made by way of a minority interest, for example, through a capital increase. In both instances, members of DBAG’s investment team personally co-invest proportionately.
Currently, DBAG invests in MBOs alongside DBAG Fund VI and provides growth financings together with the DBAG Expansion Capital Fund. Deutsche Beteiligungs AG does not invest alone in target companies (the later “portfolio companies”), but always as a co-investor alongside closed-end private equity funds, which it raises and then manages and/or advises (parallel investment funds). These parallel investment funds bundle the capital committed by German and international institutional investors.
Investing in parallel means: DBAG and the funds invest on the same terms in the same investee businesses and in the same instruments. To that end, Deutsche Beteiligungs AG has concluded co-investment agreements with the funds. The monitoring of investments and their disinvestment also take place in parallel. Parallel investment funds investing alongside DBAG have independent decision-taking structures and operate on their own account.
Deutsche Beteiligungs AG provides management or advisory services to these parallel investment funds in respect of the origination of investment opportunities and the assessment, structuring, negotiation, monitoring and realisation of the portfolio. In summary, this range of services is referred to as “investment services to funds”, or “investment services” for short. Fee income from these investment services covers a large part of DBAG’s operating costs.
Besides partially covering operating costs, the opportunity of investing alongside parallel investment funds has a number of other important advantages for DBAG and, consequently, its shareholders. For example, the assets of parallel investment funds create a much larger capital base, which allows investing in larger companies and diversifying the portfolio more broadly.
By way of the stock exchange, our business model gives shareholders access to an attractive asset class which is usually not open to investors with smaller sums to invest and the liquidity of which is considerably lower than that of stock investments, because it is normally organised in the form of closed-end funds.
The core business objective of DBAG is to sustainably increase the enterprise value of Deutsche Beteiligungs AG. We define the Company’s value in terms of the on-balance sheet consolidated net asset value. The enterprise value of DBAG is significantly determined by the value of the portfolio companies. To grow that value, DBAG supports the portfolio companies during a phase of strategic development as a financial investor in a focused partnership. To that end, DBAG aims to contribute towards having these portfolio companies sustainably create value. The value growth of the investment portfolio in turn has a direct influence on the enterprise value of DBAG. As is common in the private equity sector, the measure for our long-term performance is a period of ten years. Over this period of time, we aim to increase the net asset value per share on average by an amount that exceeds the cost of equity. We measure the performance contribution of an individual year by the median gain achieved over this ten-year period.
In financial year 2012/2013, the return on net asset value per share was 11.5 percent and clearly exceeded the arithmetically computed cost of equity. Over the past ten-year period (2003/2004 to 2012/2013), we generated an average return on net asset value per share after taxes of 14.8 percent. This exceeds the average cost of equity by more than six percentage points.
B U S I N E S S E N V I R O N M E N T U N -C H A N G E D : I N T E N S E -C O M P E T I T I O N I N P R I V A T E E Q U I T Y M A R K E T; U N -D E R LY I N G C O N -D I T I O N S M I X E -D
For years, Deutsche Beteiligungs AG has been pursuing a highly focused investment strategy in respect of business models, company size and sectors. We centre on the mid-market segment in German-speaking regions, that is, on transactions with a value of 50 to 250 million euros. This encompasses a comparatively small part of the overall private equity market. For that reason, it is difficult to relate general statements on the tone of Germany’s private equity market to the activities in that segment of the market in which DBAG chooses to operate, let alone deduce consequences from it for specific business opportunities. That applies all the more when looking at short periods such as individual quarters or financial years in which singular transactions or reporting-date effects can distort the longer term trend.
In the past quarters, growth in the M&A market was fuelled exclusively by strategic buyers; in contrast, our preferred segment of the MBO market has been stable for a number of years. This also holds true for the current year: from January to Mai 2014, we registered seven MBOs in our segment (of which one MBO – Dahlback – was transacted by DBAG); 2013 saw eight MBOs over the same period. A major driver for the transaction activity in the private equity industry is the available liquidity: huge streams of capital commitments have also been channelled into private equity funds in our market segment, and that capital is now seeking investment.
Moreover, after years of good earnings, trade buyers boast strong balance sheets and are increasingly using their resources for strategic acquisitions. Finally, the central banks have furnished the financial markets with sizeable liquidity, resulting in a rich supply of acquisition financing. This large pool of funding seeking investment stands in contrast to a limited stream of investment opportunities. For that reason, valuations – especially for well-positioned companies whose businesses are more or less non-cyclical – have become more complex in past years.
We are currently observing a larger deal flow. In the past four quarters we have screened about ten percent more transaction opportunities than in the four quarters prior to that; the share of potential transactions in our core sectors – mechanical engineering and plant construction, automotive suppliers and industrial support services – has remained constant at nearly 50 percent.
The underlying economic conditions for our portfolio companies are not homogenous. In Germany, the uptrend has gained momentum. An increase in new orders and production, higher employment and a clearly brighter sentiment among companies and consumers are driving the national economy. According to the International Monetary Fund (IMF), Germany’s gross domestic product (GDP) is expected to exhibit robust grow of 1.7 percent in 2014, up from 0.5 percent in 2013. In April, the IMF even topped these growth expectations by another 0.2 percentage points. Positive business indicators have also come from the United States.
Growth forecasts for China and India have been reconfirmed, but cyclical risks have deepened. India’s economy is currently only showing a flat growth curve. The IMF made downward corrections to the forecasts for Brazil and for Russia – here, particularly in light of the Ukraine crisis.
The rising uncertainty is partially weighing on our portfolio companies’ businesses for reasons such as hesitant demand for capital goods in the BRIC nations or persistent weak consumer consumption in those eurozone countries that are only slowly recovering from the recession. Overall, however, we consider the underlying conditions for our portfolio companies, which are mostly globally positioned and not dependent on individual geographical markets, as being satisfactory.
S TA F F
At the end of the quarterly period, DBAG employed a staff of 46 (without the Board of Management), plus six apprentices. One year ago, the staff numbered 49 and there were five apprentices.
E CO N O M I C P O S I T I O N O F
T H E G R O U P
E A R N I N G S P O S I T I O N I N T H E F I R S T S I X M O N T H S : G R E AT E S T C O N T R I B U -T I O N -T O I N C O M E F R O M H O M A G S H A R E S ; N E T E X P E N S E S N E A R LY B A L A N C E DWe recorded a consolidated net income of 18.1 million euros in the six-month period ended 30 April 2014. Of that amount, 5.6 million euros are attributable to the second quarter. Including other comprehensive income, this leads to an increase in net asset value per share to 20.45 euros, up from 20.36 euros at 31 October 2013. Similar to last year, the second quarter of 2014 saw a dividend payment of 1.20 euros per share.
The preceding year’s six-month period ended with consolidated net income of 18.9 million euros, of which 11.4 million euros were attributable to the second quarter, with net asset value reaching 19.65 euros per share, following 19.46 euros at 31 October 2012. The half-yearly net income, which was marginally lower compared to the preceding year’s period, resulted from lower net income in the second quarter. In the reporting period, the net result of investment activity was noticeably below that of the previous year, whereas total other income/expenses – meaning the Group’s net expenses – improved further and was even slightly positive. We do not attach particular significance to such movements within individual quarters, since they are frequently due to reporting-date effects: for example, transactions such as disinvestments, with the capital gains they achieve, do not take place on a regular basis. Added to this is the stock market’s volatility. The price of Homag shares fluctuated by 1.47 euros during both of the ten days of trading before and after the most recent reporting date – this equates to an effect on income of 4.6 million euros.
The net result of investment activity consists of the net result of valuation and disposal and of current income from financial assets. For the first six months, it totalled 18.8 million euros, of which 5.6 million euros were attributable to the second quarter. For the same periods the preceding year, the net result of investment activity was 23.7 million euros and 13.2 million euros, respectively. The greatest contribution to income came from the rise in the price of Homag shares, which improved from 17.78 euros to 21.03 euros over the half-yearly period. Homag exceeded its targets for 2013; analysts emphasised the “attractive valuation” and repeatedly underscored the progress the company is making in its development. The market price increase led to a value gain of 10.2 million euros on our investment in Homag Group AG. Of that amount, 4.8 million euros fall to the second quarter. In the same periods the preceding year, Homag Group AG contributed 12.3 million euros and 10.7 million euros, respectively.
Our unquoted portfolio developed positively on the whole; most portfolio companies have forecast higher revenues and earnings for the current year. However, a number of factors in the second quarter, such as the Ukraine crisis, devaluation pressure on the currencies of several economies, particularly the BRIC group of countries, as well as weaker growth forecasts for these countries, led to uncertainty in a number of our portfolio companies’ markets. Consequently, orders and the expected revenues were partially delayed, which led to expected contributions to income not yet being realised. Additionally, exchange rate swings have burdened the earnings of some investee businesses.
We took these developments into account in our valuations; thus, the value of the unquoted portfolio increased only marginally in the second quarter. Over the six-month period, the unquoted portfolio gained a total of 7.7 million euros. The value appreciation largely stems from the portfolio companies’ improved earnings and lower debt; higher valuation multiples derived from the stock market trend had only a minor influence on the gain. Five investments had a slightly negative effect of 1.3 million euros on the net valuation result, for instance, because lower order intake is expected to generate weaker revenues and lower earnings. Five portfolio companies have not yet delivered contributions to the valuation result, for reasons of their still being carried at cost due to their recent acquisition.
Current income from financial assets, totalling 1.1 million euros, was somewhat higher than that of the same period the previous year (0.6 million euros). In addition to distributions, this item also includes interest payments on shareholder loans extended to portfolio companies. Net expenses were further reduced, as planned. They totalled 0.5 million euros for the six-month period, which is 3.3 million euros below those of the previous year. In the second quarter, they reached a slightly positive net amount of 0.2 million euros, which compares with a negative 1.2 million euros in the equivalent quarter the previous year. However, for this item in the consolidated statement of comprehensive income, the results of a quarter are also not suited to conslusively derive a general trend. Transaction-related consultancy expenses and tax effects may temporarily lead to distortions. With a view to the mid-term, it should be considered that every disinvestment from the portfolio entails a reduction in fee income from investment services to funds; this tends to give rise to higher net expenses. An increase in fee income can only be expected when a new fund is raised, insofar as its size exceeds that of the predecessor fund. A major contributor to the recent improvement in net expenses was higher other operating income. This current financial year, we received fee income for investment services to DBAG Fund VI for a full six-month period, whereas in the previous year, fee income from this fund was initially recorded in February 2013 at the onset of this fund’s investment period. Conversely, fee income for investment services to DBAG Fund V continued to decline as expected, since after the end of the investment period fees are no longer paid based on capital commitments, but on the capital that is still invested. Additionally, reimbursed costs were slightly below those of the prior year. There was also a minor decline in fee income for investment services to the DBAG Expansion Capital Fund: in view of a delay in the investment progress we agreed an extension of the investment period and a reduction in management fees with the investors.
Other operating expenses amounted to 7.6 million euros for the half-yearly period, which is approximately level with those of the prior year (7.7 million euros). Here, two opposing effects had a bearing: Management fees of 1.3 million euros that DBAG pays for its co-investment share in DBAG Fund VI were recognised for the first time. On the other hand, following last year’s considerable number of transactions, transaction-related consultancy and screening costs declined by 1.1 million euros this year. Transaction-related costs are to a large extent reimbursable by the parallel investment funds concerned; the reduction in these expenses therefore corresponds to the lower reimbursed costs in other operating income mentioned above.
Personnel costs also had a positive effect on the net expense ratio. They totalled 6.4 million euros for the current year’s six-month period, down from 6.7 million euros for the same period last year. This was particularly due to the reduction in the number of the Board of Management members.
Net interest, at 0.2 million euros, remained very low, since financial resources are scarcely earning interest at the moment.
Other comprehensive income, which includes gains and losses arising on remeasurements of net defined benefit liabilities (assets)1 (“pensions”), amounted to a
negative 0.4 million euros (previous year: positive T€9). The difference between the actual and expected return on plan assets is recognised under this item. For the first six months of 2013/2014, the negative difference is higher, since, pursuant to amended accounting rules2,
the expected return on plan assets is now calculated by applying the discount rate to the pension obligation. In the previous year’s first quarter, a one-off effect had led to a gain.3
A S S E T P O S I T I O N A N D P O R T F O L I O D E V E L O P M E N T: G R O W T H I N P O R T -F O L I O V A L U E
The value of the portfolio rose by 20.6 million euros to 193.3 million euros in the six months to 30 April 2014 and reached 62.8 percent of total assets, compared with 55.6 percent at the last annual closing date. The unquoted portfolio contributed 7.7 million euros towards the gain and listed Homag Group AG 10.2 million euros. New investment accounted for 7.7 million euros. Returns, such as from investments in international buyout funds, reduced the portfolio value by 2.3 million euros. A large part of the total volume is still attributable to investments that were added to the portfolio less than a year ago and are as yet carried at their transaction value – that is, at cost.
Despite the dividend totalling 16.4 million euros paid in March 2014 following the Annual Meeting, equity increased somewhat by 1.3 million euros to 279.7 million euros. The capital-to-assets ratio is now 90.8 percent (31 October 2013: 89.6 percent). DBAG still has no liabilities to banks. Over the first six months of the financial year, we sponsored a number of attractive transactions by our investee businesses and also expanded our portfolio by adding Dahlewitzer Landbäckerei GmbH (in the future to be called: “Unser Heimatbäcker”). These transactions give rise to new investment of 14.8 million euros from the balance sheet of Deutsche Beteiligungs AG. In the reporting period, however, cash outflows on the acquisition of “Unser Heimatbäcker” had not yet occurred, and, consequently, there was no effect yet on the portfolio value.
Among these transactions was the acquisition of Harmony by FDG S.A. in December 2013, which FDG financed from its own funds. The purchase broadens FDG’s product range through the addition of toys and recreational products. Inexio, a provider of broadband connections mainly in the German federal states of Saarland and Rhineland-Palatinate, received further funding by way of profit-sharing certificates in the first quarter.
Our portfolio company Romaco is currently undergoing extensive change. In November 2013, Romaco acquired IMA
1 In the previous year termed “actuarial gains and losses on defined benefit obligations”. The new term was introduced by the amendment to IAS 19, which was required to be applied for the first time this current financial year.
2 See condensed notes to the interim financial statements, page 26, note 2 3 See notes to the interim financial statements, page 27
Kilian GmbH & Co. KG and extended its product portfolio for the pharmaceutical industry through the addition of process technologies. To finance the acquisition, DBAG and DBAG Fund V provided fresh equity to Romaco. Deutsche Beteiligungs AG invested 3.5 million euros and continues to hold an 18.7 percent interest in Romaco GmbH.
In April 2014, Romaco announced its intention to focus its strengths more strongly on the pharmaceutical market. Romaco will therefore divest its interests in FrymaKoruma AG and FrymaKoruma GmbH to “ProXES, the Processing Group” – a new holding company within the portfolio. FrymaKoruma and Stephan Machinery GmbH will be cooperating under this corporate umbrella. The latter is one of the “younger” portfolio companies, whose MBO DBAG sponsored alongside DBAG Fund V this past financial year. This will give rise to a new heavyweight in process technologies for the food industry. This move marks a decisive step forward in the growth strategy of Stephan and FrymaKoruma.
In April 2014, we sponsored another MBO alongside DBAG Fund VI: “Unser Heimatbäcker” is the fifth-largest bakery chain in Germany. Deutsche Beteiligungs AG has committed equity of 9.9 million euros. The agreement became effective subsequent to the quarterly reporting date. The company operates 357 outlets, employs a staff of 2,300 and generates annual revenues of 99 million euros. It was formed through the merger of a number of bakery chains in recent years. “Unser Heimatbäcker” is a premium quality bakery with innovative production processes and a holistic marketing concept. That gives the company a good set of prerequisites to make it a leader in a dynamic consolidation process. The fact is that the bakery sector is consolidating: experts expect that the consolidation process will be at the expense of artisan bakeries, and the winners will be food retailers and bakery chains. Against this backdrop, there are attractive growth opportunities for the company in its home region of north-eastern Germany and bordering areas. In that context, the company intends to carry its “Lila Bäcker” concept into
the market to an even greater extent. In addition to the uniform design of its shops, this concept includes a special pricing strategy and customer loyalty programmes. Following Schülerhilfe in the past financial year, “Unser Heimatbäcker” is the second company with a clearly stronger focus on Germany’s domestic market and on end-consumer demand than several of our other investments. These sectors – tutoring services and bakeries – are attractive, among other things, because of their stability and non-cyclicality. For both of these investments, the companies’ development potential was the determining criterion: we anticipate strong growth in both cases – through add-on acquisitions as well as new market entries.
We measure the fair value of our investments on the basis of our valuation guidelines at quarterly intervals. The principles and methods of valuation we employ are described in the condensed notes to the financial statements.4 The fair value
measurement of our portfolio companies entails fluctuations in their value. These fluctuations can – perhaps only temporarily – cause a portfolio company’s proportionate amount of the total portfolio value to be very small or even nil.
The portfolio of Deutsche Beteiligungs AG consisted of 20 investments at the quarterly reporting date on 30 April 2014. The portfolio value 5 reached, as
previously mentioned, 193.3 million euros, as compared with 172.7 million euros at 31 October 2013. Among the investments in the portfolio are a number of older commitments that are meanwhile of limited significance for the portfolio value – for instance, international buyout funds in the liquidation phase. Their value amounted to 4.5 percent of the total portfolio value; it declined in the reporting period, among other things, due to payouts from successful exits from the portfolios of funds. At 30 April 2014, the following ten alphabetically ordered investments were the largest in the portfolio, measured by their IFRS value. They account for some 85 percent of the total portfolio value. An extended list of portfolio companies is presented on page 36 of this report.
4 See notes to the interim financial statements, page 27, note 3
5 For derivation from statement of financial position items “Financial assets” and “Loans and receivables” see notes to the interim financial statements, pages 30, notes 10 and 11
F I N A N C I A L P O S I T I O N : F I N A N C I A L R E S O U R C E S D O W N B Y 13 . 6 M I L L I O N E U R O S
The liquidity position of Deutsche Beteiligungs AG consisted of two components: cash totalling 26.4 million euros and interest-bearing securities of 58.3 million euros. These financial resources declined by 13.6 million euros to 84.7 million euros at 30 April 2014 (31 October 2013: 98.3 million euros), due largely to outflows that were slated for the second quarter.
The dividend paid subsequent to the Annual Meeting (16.4 million euros) had the greatest impact on the movement in the liquidity position. Performance-related income payments accounted for outflows of 4.4 million euros (thereof 3.6 million euros for the past financial year and 0.8 million euros for earlier financial years).
New investment totalled 5.0 million euros – in addition to Romaco (3.5 million euros for the acquisition of IMA Kilian), inexio received a further 1.4 million euros through profit-sharing certificates. The Dahlback MBO did not prompt outflows in the period, since approval by the cartel authority had not yet been received by the end of the second quarter.
Inflows came from the repayment of a loan that had been granted in the fourth quarter of the previous financial year to a newco for bridge-over financing of a new
investment (Schülerhilfe, 8.9 million euros), as well as from a distribution by DBG Eastern Europe II (2.3 million euros). This buyout fund has continued to disinvest its remaining investments as planned. A payout from a disinvestment was received in January, but the economic benefit had already been almost completely recognised in the valuation at 31 October 2013. The repayment of the bridge-over loan significantly contributed to the positive cash flows from operating activities (4.9 million euros in the half-yearly period).
S I G N I F I C A N T E V E N T S A F T E R
T H E E N D O F T H E P E R I O D
The Dahlback transaction was completed after the end of the period. DBAG invested 9.9 million euros and now holds a 15.7 percent interest in the company.
In May, FDG, a French non-food category manager for the retail trade, repaid a shareholder loan and the interest accrued. Some two-thirds of the original costs have thus been realised. The payment led to a rise in cash resources of 3.2 million euros.
Company
Cost (€mn)
Share held by DBAG
% Investment type Sector
Broetje-Automation GmbH 5.6 18.8 MBO Mechanical engineering and plant construction
Clyde Bergemann Group 9.2 17.8 MBO Mechanical engineering and plant construction
FDG S.A. 4.9 15.5 MBO Industrial services
Formel D GmbH 10.4 15.1 MBO Industrial services
Grohmann GmbH 2.1 25.1 Expansion capital Mechanical engineering and plant construction
Heytex Bramsche GmbH 6.4 17.0 MBO Specialty chemicals
Homag Group AG 27.5 20.1 MBO Mechanical engineering and plant construction
Romaco GmbH 11.2 18.7 MBO Mechanical engineering and plant construction
Schülerhilfe 9.8 15.3 MBO Education services
S H A R E S
S H A R E P R I C E R E M A I N S S TA B L E I N F I R S T S I X - M O N T H P E R I O D
DBAG shares experienced a sideways movement in the first six months of financial year 2013/2014. At 30 April 2014, DBAG shares closed at 19.40 euros in
Xetra trading. At the end of the past financial year, they were quoted at 19.36 euros. Adjusted for the dividend of 1.20 euros per share paid on 28 March 2014, DBAG shares delivered a total return of 6.4 percent. Major benchmark indices recorded similar gains over the period: the Dax improved by 6.6 percent, the S-Dax by 7.4 percent, whereas the LPX Direct6, which advanced
by 3.4 percent, clearly gained less.
P E R F O R M A N C E O F D B A G S H A R E S A N D B E N C H M A R K I N D I C E S
(1 November 2009 to 6 June 2014; indexed to: 1 November 2009 = 100 275 250 225 200 175 150 125 100 75 DBAG Dax S-Dax LPX Direct 1.11.09 1.5.10 1.11.10 1.5.11 1.11.11 1.5.12 1.11.12 1.5.10 1.11.13 1.5.14
The key performance measure for our shares is, as is common for listed private equity firms, the ratio of the share price to the reported net asset value per share, and not the price/earnings ratio. The shares of comparable private equity companies have largely been trading at a discount to net asset value. Whereas DBAG shares were initially traded at a discount of up to five percent to net asset value per share at the beginning of the financial year, they traded at a premium of up to twelve percent to that
value after the preliminary results for 2012/2013 and the recommended dividend had been announced. Following the dividend payment in past years, DBAG shares have regularly been quoted at a discount for a certain length of time, which happened this year again. In line with that pattern, at the end of the six-month period of financial year 2013/2014, DBAG shares traded at a discount of five percent to net asset value.
T R A D I N G V O L U M E S TA B L E
Trading volumes in DBAG shares followed the traditional pattern over the first six months of the current financial year: a distinct upturn in comparison to the second half of the preceding financial year. Their liquidity was already up by two-thirds in the first quarter, averaging a daily turnover on German stock exchanges of about 540,000 euros and more than 25,700 shares. Similar to the trend in the comparative period the previous year, trading accelerated
in the second quarter to an average daily turnover of nearly 870,000 euros and over 41,000 shares. Overall, trading in DBAG shares over the first six months of the current financial year was approximately level with the prior year’s comparative period. In addition to the stock exchanges, a further 19,600 shares were traded on a daily average in the six-month period to 30 April 2014 through banks’ direct transactions and on new electronic trading platforms.7 D B A G S H A R E D ATA Q2 2013/14 Q2 2012/13 Q2 2011/12 Q2 2010/11 Q2 2009/10
Closing rate start of quarter € 22.17 20.30 16.84 21.19 17.99
Closing rate end of quarter € 19.40 17.59 16.77 19.83 17.44
High (closing rate) € 22.27 21.93 18.38 21.51 19.89
Low (closing rate) € 18.50 17.59 16.09 19.36 17.00
Market capitalisation8 – total €mn 265.3 240.6 229.1 271.2 237.4
Average volume per trading day9 No. 41,194 46,693 15,980 30,990 22,466
Average turnover per trading day10 €mn 0.866 0.947 0.272 0.638 0.407
7 SouSource: Blooloomberg 8 At endend of qu quarter 9 Stock ck exchanhange tradedded 10Stock ck exchanhange tradedded
Market capitalisation of DBAG shares reached 265.3 million euros at 30 April 2014, of which 185.1 million euros (70 percent) were in free-float ownership (as defined by Deutsche Börse AG). By market capitalisation of the free float, DBAG shares ranked 42nd (31 October 2013: 41st) among the 50 stocks indexed in the S-Dax.
Analysts monitoring DBAG shares have mostly arrived at a neutral opinion and have issued a “hold” recommendation. However, Warburg Research recently upgraded DBAG shares from “hold” to “buy” and raised its upside price target. Analysts’ ratings are regularly documented on our website at www.deutsche-beteiligung.de/IR.
O P P O R T U N I T I E S A N D R I S K S
C O N F I D E N C E A B O U T P O R T F O L I O C O M P A N I E S ’ D E V E L O P M E N T; N O M AT E R I A L C H A N G E I N R I S K E X P O S U R E
Our portfolio consists of very different companies. Many of them operate globally and have outstanding positions in their niche markets. That gives them a firm mainstay in times of growth. However, many of these companies are not immune to cyclical swings. In that respect, the global economic trend has an influence on our portfolio companies and, consequently, on the value of our financial assets. However, the global positioning of many of our portfolio companies balances the exposure to risk to a certain extent. For example, the current situation shows that the business trend in the automotive industry is heterogeneous in different parts of the world. Additionally, in weaker economic cycles companies that boast a strong market and competitive position, like those predominantly found in our portfolio, can often seize opportunities of exploiting their own strength to further expand their own position in comparison to other competitors.
Negative effects on the portfolio value may ensue not only directly from the portfolio companies’ earnings and debt positions. Changes in valuation ratios on the stock markets may also affect the portfolio value at short notice – indirectly, when determining the value of unquoted investments by applying a multiple derived from the stock market to an earnings indicator of a company to be valued; directly, via the price movement of our quoted investment. For instance, a price movement for Homag shares of one euro produces a negative or positive value contribution of some 3.2 million euros.
The Company’s equity still significantly exceeds the portfolio value. Financial resources of 84.7 million euros remain invested largely in low-risk securities of sovereign issuers as well as – from case to case – in quickly accessible term deposits with banks whose credit standing we consider to be good, based on their ratings. Financial resources account for nearly 30 percent of equity. This puts into perspective the risk arising from changes in stock market conditions and adverse effects from the global economic trend or from possible negative developments in individual portfolio companies. However, the high portion of financial resources on the balance sheet temporarily limits the potential for value appreciation, since these liquid or near-liquid resources currently earn very low returns. On the other hand, having ample proprietary financial resources available is essential in order to take advantage of investment opportunities together with investors’ capital commitments to DBAG Fund VI and the DBAG Expansion Capital Fund in the coming years.
The debt levels of our portfolio companies themselves are, in our opinion, moderate. More than 75 percent of the portfolio value relates to companies whose current debt rate is less than twice their forecast EBITDA for the current year.11
Moreover, the information on opportunities and risks contained in the combined management report at 31 October 2013 remains valid.12 There are no risks
perceivable that would endanger the Company as a going concern.
11 Debt and EBITDA based on portfolio companies’ forecasts or analysts’ estimates (Homag Group AG, here: net debt/EBITDA 2014). 12 See page 119ff. of the 2012/2013 Annual Report
R E P O R T O N E X P E C T E D
D E V E L O P M E N T S
E A R N I N G S F O R E C A S T F O R C U R R E N T F I N A N C I A L Y E A R C O N F I R M E D
The forecast we issued in our Annual Report at the end of January (2012/2013 Financial Report, page 135ff.) remains valid. For reasons of principle, we expressly refrained from forecasting the share price trend for Homag shares. Our forecast for the full year therefore does not contain a value contribution from this investment.
Assuming stable conditions in the equity markets and positive economic growth in the major industrial and emerging countries, we continue to expect that consolidated net income for 2013/2014 will fall short of that posted for the preceding financial year. This past financial year we recorded consolidated net income of 32.3 million euros. The Homag investment had contributed 23.6 million euros towards that result. We remain confident of achieving a return on net asset value per share in the order of the cost of equity – the minimum objective we have set for the long-term average.
We assume that our unquoted portfolio will also contribute positively to consolidated net income in the second half of the current financial year. First, because the drawbacks previously mentioned will at least partially be resolved for a number of portfolio companies in the course of the year. And second, because our portfolio is currently a young one. Nine of the 20 investee businesses have been in the portfolio for less than two years. That means that the plans of action agreed at the onset of the investment have frequently not or not fully been implemented as yet; their positive effects will only take hold successively. Five investments have even been held for less than one year. These are currently being valued at cost. By the end of this financial year, four of them will, for the first time, be carried in the accounts at fair value. We intend to adhere to our dividend policy. It provides for the payment of a consistent dividend, if at all possible, even for financial years ending with negative net income or in which there were no disposals that would give rise to a capital gain based on the standards of the German Commercial Code. We expect that the annual profit of DBAG and existing retained earnings will enable the payment of such a base dividend for the current and subsequent financial years. As in the past, surplus dividends remain tied to particularly profitable realisations, and these cannot be planned.
At 30 April 2014
I N T E R I M
F I N A N C I A L
S T A T E M E N T S
CO N S O L I D AT E D S TAT E M E N T O F CO M P R E H E N S I V E I N CO M E
for the period from 1 November 2013 to 30 April 2014
T€
1 Nov. 2013 to 30 April 2014
1 Nov. 2012 to 30 April 2013
Net result of valuation and disposal of financial assets and loans and receivables 17,747 23,135
Current income from financial assets and loans and receivables 1,063 569
Total net result of investment activity 18,810 23,704
Personnel costs (6,354) (6,733)
Other operating income 13,440 10,733
Other operating expenses (7,577) (7,735)
Depreciation and amortisation on property, plant and equipment and intangible assets (210) (195)
Interest income 240 654
Interest expenses (49) (569)
Total other income/expenses (510) (3,845)
Net income before taxes 18,300 19,859
Income taxes (5) (31)
Net income after taxes 18,295 19,828
Minority interest (234) (882)
Net income 18,061 18,946
a) Items that will not be reclassified subsequently to profit or loss
Gains /(losses) on remeasurements of the net defined benefit liability (asset) (391) 55
b) Items that will be reclassified subsequently to profit or loss when specific conditions are met
Unrealised gains /(losses) on available-for-sale securities 21 (46)
Other comprehensive income (370) 9
Total comprehensive income 17,691 18,955
Earnings per share in € (diluted and basic)* 1.32 1.39
* In compliance with IAS 33, earnings per share are based on consolidated net income divided by the weighted average number of DBAG shares outstanding in the financial year
CO N S O L I D AT E D S TAT E M E N T O F CO M P R E H E N S I V E I N CO M E
for the period from 1 February 2014 to 30 April 2014
T€
1 Feb. to 30 April 2014
1 Feb. to 30 April 2013
Net result of valuation and disposal of financial assets and loans and receivables 5,196 13,207
Current income from financial assets and loans and receivables 373 34
Total net result of investment activity 5,569 13,241
Personnel costs (3,003) (3,319)
Other operating income 6,407 6,780
Other operating expenses (3,164) (4,597)
Depreciation and amortisation on property, plant and equipment and intangible assets (105) (97)
Interest income 115 474
Interest expenses (25) (466)
Total other income/expenses 225 (1,225)
Net income before taxes 5,794 12,016
Income taxes (1) (25)
Net income after taxes 5,793 11,991
Minority interest (166) (552)
Net income 5,627 11,439
a) Items that will not be reclassified subsequently to profit or loss
Gains /(losses) on remeasurements of the net defined benefit liability (asset) (193) (87)
b) Items that will be reclassified subsequently to profit or loss when specific conditions are met
Unrealised gains /(losses) on available-for-sale securities 79 (12)
Other comprehensive income (114) (99)
Total comprehensive income 5,513 11,340
Earnings per share in € (diluted and basic)* 0.41 0.84
* In compliance with IAS 33, earnings per share are based on consolidated net income divided by the weighted average number of DBAG shares outstanding in the financial year
CO N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S
for the period from 1 November 2013 to 30 April 2014
I N F L O W S ( + ) / O U T F L O W S ( - ) T€ 1 Nov. 2013 to 30 April 2014 1 Nov. 2012 to 30 April 2013
Consolidated net income 18,061 18,946
Valuation gains (-)/losses (+) on financial assets and loans and receivables,
depreciation and amortisation on property, plant and equipment and intangible assets (18,335) (19,757)
Gains (-)/losses (+) from disposals of non-current assets 25 (671)
Increase (+)/decrease (-) in non-current liabilities 467 581
Increase (-)/decrease (+) in income tax assets (126) (374)
Increase (+)/decrease (-) in tax provisions 1 529
Increase (+)/decrease (-) in other provisions (3,973) (3,783)
Increase (-)/decrease (+) in other assets (netted) 9,695 (2,187)
Increase (+)/decrease (-) in other liabilities (netted) (873) (658)
Cash flows from operating activities * 4,942 (7,374)
Proceeds from disposals of property, plant and equipment and intangible assets 47 0
Purchase of property, plant and equipment and intangible assets (260) (108)
Proceeds from disposals of financial assets and loans and receivables 3,128 50,706
Acquisition of non-current financial assets and investments in loans and receivables (5,016) (11,820)
Increase (-)/decrease (+) in long- and short-term securities 20,194 12,292
Cash flows from investing activities 18,093 51,070
Payments to shareholders (dividends) (16,412) (16,412)
Cash flows from financing activities (16,412) (16,412)
Change in cash funds from cash-relevant transactions 6,623 27,284
Cash funds at start of period 19,793 22,732
Cash funds at end of period 26,416 50,016
* Contained therein are received and paid income taxes of T€-200 (previous year: T€-44) as well as received and paid interest and received dividends of T€959 (previous year: T€630).
CO N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S
for the period from 1 February 2014 to 30 April 2014I N F L O W S ( + ) / O U T F L O W S ( - )
T€ 1 Feb. to 30 April 2014 1 Feb. to 30 April 2013
Consolidated net income 5,627 11,439
Valuation gains (-)/losses (+) on financial assets and loans and receivables,
depreciation and amortisation on property, plant and equipment and intangible assets (5,883) (12,961)
Gains (-)/losses (+) from disposals of non-current assets 10 (149)
Increase (+)/decrease (-) in non-current liabilities 308 496
Increase (-)/decrease (+) in income tax assets (27) (216)
Increase (+)/decrease (-) in tax provisions 0 547
Increase (+)/decrease (-) in other provisions (4,217) (5,389)
Increase (-)/decrease (+) in other assets (netted) 1,362 (613)
Increase (+)/decrease (-) in other liabilities (netted) (562) (133)
Cash flows from operating activities * (3,382) (6,979)
Proceeds from disposals of property, plant and equipment and intangible assets 34 0
Purchase of property, plant and equipment and intangible assets (121) (63)
Proceeds from disposals of financial assets and loans and receivables 1,395 (438)
Acquisition of non-current financial assets and investments in loans and receivables (816) (86)
Increase (-)/decrease (+) in long- and short-term securities 20,059 2,856
Cash flows from investing activities 20,551 2,269
Payments to shareholders (dividends) (16,412) (16,412)
Cash flows from financing activities (16,412) (16,412)
Change in cash funds from cash-relevant transactions 757 (21,122)
Cash funds at start of period 25,659 71,138
Cash funds at end of period 26,416 50,016
* Contained therein are received and paid income taxes of T€-27 (previous year: T€-496) as well as received and paid interest and received dividends of T€196 (previous year: T€345).
CO N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N
at 30 April 2014 T€ 30 April 2014 31 Oct. 2013 A S S E T S Non-current assets Intangible assets 39 34Property, plant and equipment 1,258 1,273
Financial assets 180,407 166,752
Loans and receivables 20,881 14,110
Long-term securities 30,348 50,514
Other non-current assets 925 867
Total non-current assets 233,858 233,550
Current assets
Receivables 3,577 11,980
Short-term securities 28,000 28,028
Other financial instruments 2,074 2,401
Income tax assets 3,578 3,452
Cash and cash equivalents 26,416 19,793
Other current assets 10,425 11,448
Total current assets 74,070 77,102
Total assets 307,928 310,652
L I A B I L I T I E S
Equity
Subscribed capital 48,533 48,533
Capital reserve 141,394 141,394
Retained earnings and other reserves 1,403 1,773
Consolidated retained profit 88,362 86,713
Total shareholders’ equity 279,692 278,413
Liabilities
Non-current liabilities
Minority interest 10,327 10,146
Provisions for pension obligations 3,682 3,419
Other provisions 242 218
Deferred tax liabilities 60 61
Total non-current liabilities 14,311 13,844
Current liabilities
Other current liabilities 1,970 2,468
Tax provisions 1,839 1,838
Other provisions 10,116 14,089
Total current liabilities 13,925 18,395
Total liabilities 28,236 32,239
CO N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y
for the period from 1 November 2013 to 30 April 2014T€ 1 Nov. 2013 to 30 April 2014 1 Nov. 2012 to 30 April 2013 Subscribed capital
At start and end of reporting period 48,533 48,533
Capital reserve
At start and end of reporting period 141,394 141,394
Retained earnings and other reserves Legal reserve
At start and end of reporting period 403 403
First adoption IFRS
At start and end of reporting period 15,996 15,996
Reserve for gains/losses on remeasurements of the net defined benefit liability (asset)
At start of reporting period (14,578) (10,990)
Change in reporting period (391) 55
At end of reporting period (14,969) (10,935)
Change in unrealised gains/losses on available-for-sale securities
At start of reporting period (48) 38
Change in reporting period through other comprehensive income (38) (28)
Change in reporting period through profit or loss 59 (18)
At end of reporting period (27) (8)
At end of reporting period 1,403 5,456
Consolidated retained profit
At start of reporting period 86,713 70,831
Dividends (16,412) (16,412)
Consolidated net income 18,061 18,946
At end of reporting period 88,362 73,365
C O N D E N S E D N O T E S T O T H E C O N S O L I D A T E D
I N T E R I M
F I N A N C I A L
S T A T E M E N T S
for the first half-year and 2nd quarter of financial year 2013/2014
G E N E R A L I N F O R M AT I O N
1 . B A S I S O F P R E P A R AT I O N
These interim financial statements of Deutsche Beteiligungs AG at 30 April 2014 have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as adopted for use in the European Union. These interim financial statements also comply with IAS 34 “Interim Financial Reporting”. The interpretations of the International Financial Reporting Interpretations Committee (IFRIC) relevant to interim financial reporting have also been applied.
The interim financial statements consist of the consolidated statement of comprehensive income, the consolidated statement of cash flows, the consolidated statement of financial position, the consolidated statement of changes in equity and these condensed notes to the consolidated financial statements.
As compared with the financial statements for the period ended 31 October 2013 (see page 144ff. of the Annual Report), we have refrained from presenting a separate consolidated income statement and in line with the one-statement approach have instead presented “profit or loss” within the consolidated statement of comprehensive income. This is meant to enhance the clarity of the Group’s results in the period. The change in presentation does not change the amounts or the earnings per share (diluted and basic) shown for past periods.
2 . C H A N G E S I N A C C O U N T I N G M E T H O D S D U E T O A M E N D E D R U L E S
In financial year 2013 / 2014, the following new standards and interpretations or amendments to standards and inter-pretations have become applicable for the first time (see page 149ff. of the Annual Report):
>
Annual Improvements to IFRS “Project Cycles 2009 to 2011”>
Amendment to IFRS 1 “First-time Adoption of IFRS”>
Amendment to IFRS 7 “Financial Instruments: Disclosures”>
IFRS 13 “Fair Value Measurement”>
Amendment to IAS 19 “Employee Benefits”>
Amendment to IFRIC 14 “IAS 19: The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”>
IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”The A N N UA L I M P R OV E M E N T S T O I F R S “ P R O J E C T C YC L ES 2 0 0 9 TO 2 011“ include amendments to IAS 34 “Interim Financial Reporting”. These amendments now require making certain disclosures on financial instruments as in IFRS 7 in the interim financial reporting as well. Accordingly, a description of the designation of categories of financial instruments and their reconciliation to items of the statement of financial position is to be presented (see section 13).
Furthermore, the new standard I F R S 13 “ FA I R VA LU E M E A SU R EM E N T ” has an impact on IAS 34. It specifies that disclosures are required on fair value measurement and on the hierarchy of financial instruments. These disclosures comprise in particular:
>
the disclosure of transfers between Level 1 and Level 2 in the hierarchy of financial instruments,>
a description of the valuation methodology and inputs applied,>
a reconciliation from the opening balances to the closing balances for Level 3,>
quantitative information about significant unobservable inputs used in fair value measurement,>
a quantitative sensitivity analysis for periodically recurring fair value measurement within Level 3.We refer to notes 3., 7. and 13. of these condensed notes to the interim financial statements.
Based on the amendments to IAS 19 “EMPLOYEE BENEFITS”, the expected return on plan assets is now recognised to the amount of the current discount rate of the pension obligation. In accordance with this, the expected return on plan assets is 2.94 percent (previous year: 1.35 percent). The consolidated net income correspondingly contains higher interest income. The effective interest on plan assets in the first six-month period amounted to 0.1 percent (previous year 0.1 percent). Since the effective interest did not increase to the extent now required to be recognised for the expected return under the new rules, the difference will be recognised in other comprehensive income in the item gains / (losses) on remeasurements of the net defined benefit liability (asset).
In the six months to 30 April 2014, plan assets developed as follows: T€ 1st half year 2013/2014 1st half year 2012 /2013 Fair value of plan assets at
start of financial year 28,028 27,999
Expected return 412 189
Gains/(losses) arising from differences
between actual and expected return (391) (175)
Fair value of plan assets
at 30 April 2014 28,049 28,013
Amounts recognised in consolidated net income:
T€ 1st half year 2013/2014 1st half year 2012 /2013 Service costs 196 332 Interest expenses 458 394
Expected returns on plan assets (412) (189)
242 537
Service costs are recognised in “Personnel costs” and interest expenses netted against expected return on plan assets in “Interest expenses”.
Movements in gains / (losses) on remeasurements of the net defined benefit liability (asset) in the first six months of 2013 / 2014 were as follows: T€ 1st half year 2013/2014 1st half year 2012 /2013 Actuarial gains/(losses) on defined benefit
obligations 0 229
Gains/(losses) arising from the difference between actual and expected return on
plan assets (391) (174)
(391) 55
The loss of T€-391 in the first six months of financial year 2013 / 2014 (previous year T€-174) results from the difference between the expected return of 2.94 percent (previous year 1.35 percent) and the effective Interest of 0.1 percent (previous year 0.1 percent) on plan assets. In the previous year this item contained an actuarial gain of T€ 229, due to the early decease of a beneficiary.
The amendments to other standards and interpretations did not have an impact on the current interim financial statements.
3 . A C C O U N T I N G A N D V A L U AT I O N P O L I C I E S
Valuation procedure used to determine
the fair value
The fair values for the various categories of assets are measured in accordance with consistent valuation procedures and on the basis of uniform input factors. Fair value accounting F O R F I N A N C I A L A SS E T S A N D OT H E R F I N A N C I A L I N S T RU M E N T S is based on DBAG’s valuation guidelines. DBAG employs valuation procedures that are commonly used by market participants in the private equity industry to value portfolio companies. This industry standard is detailed in the recommendations of the „International Private Equity and Venture Capital Valuation Guidelines“ (IPEVG) dated December 2012.13
To the extent possible, the fair value of a portfolio company is measured based on prices from transactions in the market that were observed on the valuation date or immediately prior to that date. This is normally possible for companies whose shares are quoted on the stock market. These portfolio companies are valued at the closing rate on the valuation date or the closing rate on the last day of trading prior to this date. The fair value thus determined is neither reduced by discounts or premiums attaching to the sale of larger blocks of shares, nor by deductions for disposal costs. Should the sale be subject to contractually agreed restrictions (lock-up), a risk-adjusted deduction is made on the observed transaction price. The amount of the risk-adjusted deduction is at the discretion of the Valuation Committee. For unquoted companies, a valuation methodology may be considered that is based on a signed purchase agreement or a binding purchase bid, if the completion of the purchase agreement is sufficiently assured or if the purchase bid seems sufficiently realisable. If appropriate, valuations can be based on the price at which a significant amount of new investments into the portfolio company was made (financing rounds) or on significant comparative prices of recent transactions that have taken place in the market. If the transaction price observed in the market at the valuation date or the price of the most recent investment made prior to the valuation date do not constitute a sufficiently reliable method – for reasons of lacking liquidity in the market, for instance, or in the event of a forced transaction or distressed sale – the fair value is measured based on the valuation methodologies recommended by the IPEVG and applied by market participants in the private equity sector. These are the multiples method for interests in companies and, for interests in funds, either the net asset or discounted cash flow methods.
For further information on valuation methodologies, we refer to the 2012 / 2013 Annual Report, page 157ff.
The fair value measurement of LO N G - A N D SH O R T-T E R M SECU R I T I ES is based on indicative prices by dealers or price information systems (Reuters, Bloomberg, etc.), which, due to lower market turnovers, are generally not founded on observed transaction prices.
With the exception of the changes in note 2., the same accounting and computation methods have been applied in preparing the interim financial statements at 30 April 2014 as have been for the consolidated financial statements at 31 October 2013. We refer to pages 152 to 163 of the 2012 / 2013 Annual Report.
4 . S I G N I F I C A N T E V E N T S A N D T R A N S A C T I O N S
Events and transactions that are significant for an understanding of the changes that have taken place in the Group’s asset, financial and earnings position since the end of the preceding financial year are discussed in management’s interim report.
5 . S E A S O N A L A N D C Y C L I C A L E F F E C T S
Seasonal and cyclical effects are mirrored in the valuation of financial assets at fair value through profit or loss. We refer to the discussion in management’s interim report for further information.
6 . U N U S U A L I T E M S
No unusual items have been recorded affecting assets, liabilities, equity, net income for the period, or cash flows, and which are unusual because of their nature, size, or incidence which have not been discussed in management’s interim report.
